Global base oils -week of Jan 16: Demand outlook

·        Rebounding crude oil prices re-confirm firm bottom at $70/bl; prices get support from weaker US dollar, expectations of reviving economic growth in China.

·        Further fall in US inflation in December raises expectation of smaller US interest-rate increase in February, pause in rate-increases from start of Q2 2023.

·        US four-week average gasoline demand falls in early-January for 41^st straight week; pace of contraction slows.

·        Weakening Americas lube demand, combined with firmer Chinese demand, likely to complicate arbitrage flows from Asia to Americas.

·        Slowdown in Latin America’s lube demand could benefit US refiners by complicating arbitrage opportunities from Asia.

·        Any slowdown in Mexico’s lube demand in 2023 likely to have smaller impact on US shipments to the country compared with 2022.

·        Economic growth in Q4 less weak than expected in European markets like Germany and UK.

·        Warmer-than-expected weather in Europe cuts energy costs, eases concern about winter gas shortage.

·        Typical base oils demand weakness in Europe at start of year generates price response that incentivizes drop in supply.

·        Fall in prices set to magnify impact of likely supply-demand imbalance in coming weeks.

·        Any such drop in supply would likely coincide with seasonal pick-up in demand in few weeks’ time and imposition of EU sanctions on Russian oil products in early February.

·        Steady European base oils imports from Russia in Q4 2022 suggest some buyers still need to line up alternative supplies before EU ban on Russian imports comes into effect.

·        Europe’s steady imports from Russia since Q2 2022, combined with rise in Russian shipments to Turkey, help to sustain steady Russian base oils exports in 2022.

·        Cessation of Europe imports in Q1 2023 set to add to pressure on Russian producers to line up alternative outlets or cut run rates.

·        Turkey’s demand for premium-grade supplies from Europe likely to hold firm even amid rising imports of premium grades from Russia.

·        Asia-Pacific base oils demand likely to get seasonal boost after lunar new year holidays amid festivals in southeast Asia, spring oil-change season in China, financial year-end in India.

·        China’s December passenger car sales fall 6pc year on year; truck sales fall 23pc, reflecting weak industrial activity.

·        China’s car sales show signs of falling in early January from year-earlier levels following expiry of stimulus measures. Sales hold firm vs early December.

·        Chinese blenders’ lack of stock-building ahead of lunar new year gives them leverage to manage possibility of slow demand in spring oil-change season.

·        Lack of stock-building conversely leaves Chinese blenders exposed to possibility of stronger-than-expected pick-up in base oils demand as economic recovery coincides with spring oil-change season.

·        Indonesia’s demand for overseas base oils supplies likely to stay strong this year amid still-firm economic growth.

·        Indonesia faces prospect of rising competition for those overseas supplies amid pick-up in Chinese demand.

·        Trend already began in late-2022.

·        India’s December base oils imports fall to lowest in more than two years as regional supply surplus dwindles, ahead of seasonal rise in demand in Asia-Pacific in Q1 2023.

·        India’s rising domestic lube consumption set to sustain firm demand for base oils.

·        Indian refiners’ high base oils production in 2022 unlikely to rise much more without new capacity.

·        Until new capacity starts up, buyers would need to tap more base oils supplies from overseas markets to cover further rise in lube demand.

·        India’s demand for very-light grade base oils likely to stay muted.

·        Rising consumption of premium-grade base oils in markets like Pakistan likely to sustain firm demand for overseas supplies, cushion against impact of slowdown in domestic lube demand.